Note Summary of significant accounting policies
Revenue accounting policy applicable to the financial year
prior to January 1, 2018 can be found on page 54 in AAK
Annual Report 2017.
Employee benefits
a) Pension liabilities
A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate legal
entity. The Group has no legal or constructive obligations
to pay further contributions if this legal entity does not hold
sufficient assets to pay all employee benefits relating to
employee service in the current or prior periods. The fees
paid in exchange for the employee performing services for the
company are recognized as expenses in the period in which
the services are performed.
A defined benefit pension plan is a pension plan that is not
a defined contribution plan. The characteristic feature of a
defined benefit plan is that it defines an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of
service and remuneration.
The liability recognized in the balance sheet in respect
of defined benefit pension plans is the present value of the
defined benefit obligation at the end of the reporting period
less the fair value of plan assets. The defined benefit obligation
is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined
benefit obligation is determined by discounting the estimated
future cash flows using interest rates of high-quality mortgage
bonds that are denominated in the same currency in which
the benefits will be paid, and that have terms of maturity
approximating the terms in the related pension commitment.
Past-service costs are recognized immediately in the income
statement.
The net interest rate is calculated by the discount rate being
applied to defined benefit plans and to the fair value of plan
assets. This expense is included in the personnel costs in the
income statement.
Actuarial gains and losses as a result of experience-based
adjustments and changes in actuarial assumptions are
recognized in other comprehensive income in the period in
which they arise.
b) Termination benefits
Employees receive compensation on termination before
normal retirement age or when they voluntarily accept termination
in exchange for these benefits. The Group recognizes
termination benefits when it is demonstrably committed to
either terminating the employment of current employees
according to a detailed, formal plan without possibility of
withdrawal; or providing termination benefits as a result of an
offer made to encourage voluntary redundancy.
c) Variable remuneration
Annual variable remuneration is based on meeting set targets
determined on an annual basis. These targets are related
to the performance of the Company. The Group recognizes
costs as and when earnings occur.
Leases up to December 31, 2018
Leasing is classified as operating leasing when the risks and
benefits of ownership are retained by the lessor. All leasing
agreements within the Group are classified as operating
leases. Operating lease payments are recognized in the
income statement on a straight-line basis over the period of
the lease.
Leases as from January 1, 2019
The Group leases various land, buildings and vehicles. Rental
contracts are typically made for fixed periods of 10 to 30
years for land, 5 to 20 years for buildings and 3 to 5 years for
vehicles but may have extension options as described below.
Lease terms are negotiated on an individual basis and contain
a wide range of different terms and conditions.
Leases are recognized as a right-of-use asset and a
corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset
is depreciated over the shorter of the asset’s useful life and
the lease term on a straight-line basis. Assets and liabilities
arising from a lease are initially measured on a present value
basis. Lease liabilities include the net present value of the
following lease payments:
fixed payments (including in-substance fixed payments),
less any lease incentives receivable in connection with
the inception date of the lease
variable lease payment that are based on an index
or a rate, measured based on the index or rate at
initial recognition
amounts expected to be payable by the lessee under
residual value guarantees
the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option
payments of penalties for terminating the lease, if the
lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease, if that rate can be readily determined. If
that rate cannot be readily determined, the lessee uses the
Group’s incremental borrowing rate.
Right-of-use assets are measured at cost comprising the
following:
the amount of the initial measurement of lease liability
any lease payments made at or before the commencement
date less any lease incentives received in connection with
the inception date of the lease
any initial direct costs
restoration costs of the underlying asset in accordance with
the lease agreement.
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